So already i want to please have your attention again. Welcome back. It is now time for session five and this session is entitled a historic tax cut campaign. This panel will be moderated by steve forbes. Mr. Forbes, chairman and editor in chief of forbes media, mr. Forbes campaigned vigorously the presidency in 1996 and 2000. Hes the author of several books, including most recently inflation what it is, why its bad and how to fix it. Forbes is a trustee of the coolidge foundation. Please join me in welcoming mr. Forbes and our. Thank you. Sir. Zara. Yes. Good. Thats on. Yes. Well, thank you for mentioning the book yesterday. Several of the Panel Participants made commercials for their books. You can find eight of mine on amazon. And so thatll help cover my train fare the next i come down here. If you buy it from me today, give you 2 off for cash. But it is. Theres a good fun to be here. Good morning. Thank all of you for participating. Thank cspan audiences as well for listening in on the santana of Calvin Coolidge becoming president of the states. I think whats coming through is that there are a lot of lessons of obviously times and circum change, but principles of soundness, prosperity liberty do not. So theres much to learn. So the title our panel today is an tax cut campaign of that subject. Unfortunately, its always us like one other subject, but in terms of in terms taxes, people, lets begin by saying people assume its a natural part of human nature that the 1920s were inevitable, that this prosperity turned out to be a prosperous, innovative decade would have happened no matter what. And the real truth is think is coming across here that this conference is that people do make a difference. 1920s if Teddy Roosevelt had lived he died in 1919, january 1919. If he had lived, would have won the republican nomination in 1920. He would have won election. That would have been a very administration. Would he be appointed mellon to the treasury . Probably not. What do you pursue . The tax cuts with . The vigor first of harding and then especially with Calvin Coolidge . We know the answer to that. I love Teddy Roosevelt, but i want my economics from somebody else. And or if or if or if Herbert Hoover. You could make a case and it could have very well happened with a few adroit maneuvers for Herbert Hoover immensely, popular among democrats and republicans everybody could have won the presidency in 1920. And there was an historian one, even though i didnt i do agree with all those conclusions when fellow named richard hofstadter, who wrote about the tragedy of herbert, was the imagine of herbert become president in 1921 instead of 1929. How great his reputation would have been prosperous decade. That again assumes the decade was inevitable. Hoover had a very different attitude towards economic policy. Another subject for, another time, and he would not have appointed Andrew Mellon the treasury. And so would have been a very different decade in terms of what we had. So tax cuts are crucial. As youve heard, the decade of the 1920s turned out to be one of the most innovative, constructive decades in Human History setting. The stage for American Growth and indeed for world growth for the rest of the 20th century. Extremely underrated decade and tax cuts were crucial to and creating the environment for this extraordinary outburst of innovation and bringing to the fore. When you talk about new, it always takes time for those technologies to ubiquitous where everyone has it. Usually 1520 year period gestation before it becomes a major consumer. But in the 20 so much came together we had the film much that on college because it emphasizes what a great decade that turned out to be. But taxes made the difference. And if you to see the difference, look at the u. S. Versus, Great Britain in the 1920s. Britain had a horrible decade. Yes, it had. Prosperity was marked by civil strife and not just at the beginning of the decade. Throughout the decade, unemployed meant in 1929 was still around 8 to 10 of the u. S. Had full employment. One of the key things is, unlike u. S. , they were very slow in getting rid of the wartime taxes. They never had a tax cut program that you saw from harding and then of especially from calvin, the vigor with which he mellon and laudrup put pursued that in terms of getting those tax cuts through which were going to touch on. And so by doing those major tax cuts, the u. S. Had a booming decade. Britain had a stagnant decade. So tax cuts make a difference has been mentioned coming out of world war. You know, 1913 when the income tax was enacted, it was all of 7 , the highest rate. And that was if you made several million a year by the end of the war was 77. The timid Wilson Administration cut it to 73. Will but but it it was a real real dead weight on the economy. Capital gains are going to discuss was unsettled in the 1913 income tax act which wasnt special provisions so you could make a that the age of capital tax would have been 73 . Well find out how that didnt happen because of what harding and coolidge did. So they vowed normalcy we got to do we did get Andrew Mellon foremost one of the foremost business moguls today, if not the foremost as treasury. And he understood as few others did the need to slash tax rates, not taxes, but tax rates. And he said, quote, the history of taxation shows that taxes, which are inherently excessive are not paid. The high rates inevitably put pressure upon the taxpayer to withdraw his capital from productive business. The result is that the sources of taxes are drying up. Hes talking about this. And when when he took office wealth is wealth is not done. The form of taxation dries up. And he says to caricature, well, the rich not carrying their burden, not theyre bad, but because theyre avoiding these excessive tax rates. So he said they dont end up paying their share of the burden. And he says is being diverted into channels yield neither revenue to government adequate revenue to the government nor profit to the people. So he would agree with a Bernie Sanders that the rich arent paying enough, but he saw the real reason for it was excessive taxation which focused peoples energies on the wrong. So the harding 21 tax cut harding called 1921 tax. It was still a hard slog. It progressive and southern populist who opposed it. They did make changes in the Capital Gains, did remove the wartime excesses tax but its still more needed to be done. Coolidge pursued in 1924 after he took became president , but was a length considered by many as a duck. Ferocious fight. Get that 1924 tax cut through if they manage to get the top rate down 57 to 46. But there was a lot of bad stuff in it, a lot of bad stuff in it. They couldnt get it down to 25. A lot of bad stuff. One was the peeping tom provision, which meant that your tax, if youre rich, was excessive to the public that post it in irs seeker. Find out what somebody what the income was and what tax they paid the call the peeping tom was a little touch that so just to reassure re families this is not this is tax peeping toms and and they also they also they also put in a gift tax. And so the caller was urged by many cut to veto this bill. But he and mellon realized and this is what statesmanship is all about, that if you if you get something that is more good than bad mexican, Army Stronger and eventually puts you in a position to do the big things so they got the reelection in 1924 and then after another ferocious fight again posed by progressives, many southern populists, all these alternative tax bills were floating around. They managed get it through a 1926 cut, the rate to 25 cut of excise taxes, which are, in effect, sales tax on specific products. So as a grown of greatest tax cuts, bills in american history, thats why the decade the 1920s was so, oh, so, so prosperous, such a good one. So our panel is going talk about the tax cut campaign and its effect. So were going to we are we have three great speakers. We have congressman french hill of, arkansas, who is also an historian. We have diana firth, got roth, furchtgottroth who also has been involved in tax fight. Shes not only a superb economist, but im involved in tax cut fights. And three or four republican administer. And then, of course, jim lussier, who also is a tax expert. So were going to start with you, congressman. Youre also doing a biography of Nicholas Longworth, who was speaker of the house, also was very, very instrumental in getting through the coolidge tax cuts. He understood it better than predecessor. So youre doing a great biography, by the way. I shouldnt do this, but the cable channels love to look at Nicholas Longworth and his wife, Alice Roosevelt longworth. Some juicy stuff there in their behavior. So i want my fair just suggesting that that way anyway kind of stretch here why dont you on an introduction this is the grated longworth show. We do have the more explicit it longworth show that can be happened at night. First let me thank amity for inviting me to participate in this. Its great to be with my colleagues, particularly diane and i, who were four years together in one of those tax fights back in the administration of george h. W. Bush. Let me also congratulate the scholars who here i was it was such a treat. Spend 4th of july weekend, 150th 4th of july weekend for Calvin Coolidge at Plymouth Notch last summer and. Hear you debate my bill from the house floor. That price stability should be the sole mandate of the federal reserve. And i appreciate your question back here next quarter. And then arkansan cant say but thank you for the valley water from hot springs arkansas you dont need any of those cable advertisements for sleep or balance of nature you just need Mountain Valley water. Thank you very much. And their sailor van scenes now get into that so exactly 100 years ago in february 23 Nick Longworth was having a fit. He was really frustrated the off year elections of 1920 to the republic wins in the senate, their majority, but their strength in the senate was weakened by seven seats and insurgent progressive senator la follette of wisconsin won in a landslide. And the clout of that midwest drawn populous farm belt bloc led by la follette and. Bill cannon from iowa, expand their clout in the senate. The republicans in the house, their margin was slim. They maintained the majority but they lost seats. And la follette inspired republican insurgents in the house made electing leadership pretty tough. So tough that didnt really talk about it until about a month ago, because that was the 22 elections that led to the fight that caused Nick Longworth to have a tough time becoming majority. And it took nine ballots for Fred Gillette, a former governor of massachusetts personal friend of Calvin Coolidge to be elected speaker and 1923. But more on that later. Longworth frustration was by the fact that those narrow majority were accompanied by this bad split inside the republican. Just make it, thus making his goal of enacting treasury secretary Andrew Mellons badly needed tax tougher, much tougher. Two years earlier, theyd been so optimistic and so well prepared. The republicans had crushed democrats in 1920 404 electoral votes, 60 of the popular vote beating james cox, ohio. Governor so you had two ohioans running against each other and fdr as vp for cox, its clear, as everybody has said and we learned in the movie last night, normalcy was, the call of the day and even wilson said that we should lower tax rates and put the budget on a postwar footing. So when harding died of a heart attack and coolidge became, the president of course, there was commonality of view, as dr. Harding said, a few minutes ago. But why was that . Was the teapot dome people, was it Florence Harding whispering her eyes and in her husbands ear to a conservative . Was it the fact that Calvin Coolidge was absolute tax cutting . No. The secret glue, the harding and coolidge consistency was Andrew Mellon at treasury, the first among equals of wilson holdovers was a guy named Parker Gilbert, been a partner at jp morgan, joined the treasury to work on the war bond issue and at age 30 became the under of the treasury and became the top person to implement mellon scientific tax reform. And he stayed on to help guide that between the harding and the coolidge administrations. And we talked about the crushing war debt, but i mean, the u. S. Cost. I love this one. Uncle sam with us, expensive, crushing him and you got Calvin Coolidge say lots more to come off unnecessary expenses great berryman cartoon but what was the really struggle was fact that the interest carey on the debt was 1 billion more than entire prewar budget just interest. So mellon was going to lead this charge youve talked about the budget in the previous so he wanted to focus revenues and of course the income tax was ten years old in those. 1920s and before then taxes were from excise taxes and duties on, import duties that was about 80 of federal revenues. But after 13, when we got the income tax case, Supreme Court ruling by 1918, beginning of the war, 8 of federal tax revenues came from the income tax. And as steve pointed out, every year there was a tax bill. We talked about 1918. We talked. 1921. And in 1921 that marginal rate, as you saw on your brochure, the base rate plus the surtax had reached 73 . That was the marginal tax rate. And so that was the beginning of this challenge. And the 1921 bill had this peeping tom rule one. Its worth mentioning, because its the talk of the town now, because thats the rule that got the tax returns of donald trump. That is the rule dating back to that time. And its because wisconsin la follette had every income tax filing in wisconsin after they had it was public, just like like your property taxes. Right. We know your assessed value for your home. We know what you pay in property tax. Its a matter of public record. The wisconsin midwestern populace wanted that for the income tax. And this peeping tom provision has prevailed all these years in one form or another. So treasury secretary gilbert. No one thought they should press on anyway in. The 1920 324 session, even though longworth was telling them, i dont think we have the votes. So they on and gilbert behind the scenes briefing to melbourne to coolidge was look if longworth cant get this through because of la follette power in the house his bigger majority in the senate then well have this the number one Campaign Issue for 1924. And thats what they about doing. So two days after Fred Gillette went through nine ballots and Nick Longworth had almost a heart attack trying to become majority leader and. December 1923, coolidge went to the house on a freezing cold december 6th to the joint session of congress that he wholeheartedly endorsed the mellon plan. High taxes rich everywhere and burden everybody they gear most heavily upon the poor. They diminish industry, commerce. They make agriculture unprofitable. They increased rates on transportation. They are a charge on every necessity of life. Thats the kickoff on live 1 million listeners that night. So longworth goes to work but smooth sailing was not to be as noted by steve forbes, because nicks favorite person in the world besides his wife alice, roosevelt longworth. Well, this may with male friends. His favor a certain saying very much ohio from idaho i should say exactly his favorite friend of the house was elected with him 1903. They served on ways means together Foreign Affairs and thats jack garner you valley texas who become fdr as v. P. But jack garner on ways and means. The minority leader was master tactician on the house floor. So this battle, pitt longworth against garner and garner that year knew how to outsmart longworth. So as dave pointed out and i wont dwell on this, they got it down. But it wasnt so good. They duked it out on the house floor from february to june 1924, and the Democrats Team was a forward in insurgents, and they beat the mellen plan. But as steve says, they got it somewhat and. Thats when gilberts plan to make it a 1924 election season. The top issue no. One released his book, taxation the peoples business, and it sent to free copies to every College Public library chambers of commerce. They had clubs in every state, particularly states of the members of the ways and Means Committee board. We would think of that as astroturf now, but it was truly grassroots and they lobbied member intensively and at the bottom line was the by the 1924 election, they an outstanding victory 54 of the vote and that gave the advantage to longworth and the bottom line was and that next year of 1925 and two six they were able to run that bill through and longworth did something that Speaker Mccarthy has not done. He took the members that campaigned against coolidge 24 and said that he loved them. He thought they were great people. Im sure they acted out of. Im sure they were fine members of congress from their district, but he wouldnt invite them to any meetings of the ways and Means Committee and they couldnt come to the republican conference meeting. And that made it a little easier to vote of committee. The mellon tax plan, which ultimately passed and jack jack gardner basically rolled over. And one of my favorite aspects of this was ill conclude with this turned over to my colleagues was at signing ceremony. Heres how i described it just before ten in the morning on february 26th, 1926. So three years of trying to make this happen, 23, 24, 25, 26. They never gave up persistent. Congressional leaders, including democratic Ranking Member on ways and means, jack gardner. Finance Committee Chairs reed Ranking Member herbert House Majority leader. John tilsen, chairman green and secretary mellen gathered with president coolidge in his office to sign the revenue act of 1926. Those in the photograph, if in a very bipartisan conclusion to a three year legislative battle, the saber tooth tiger in opposition to the melon plan led by la follette garner two years before, were now purring house cats jockeying for position in a white house signing ceremony, photographed a dozen reporters documented the ceremony and senator simmons nearly burned a hole in the president s jacket with his lit cigar oh and at 10 22 a. M. It was done in plenty of time for the goal of having it signed before tax day 1926. When one of the one of the nice things about that tax bill was that it was made retroactive of to 1925 to do doing something good instead of figuring out ways to, postpone good things or take more out of your pocket. Our second speaker, dana, first got roth. She is an outstanding economist with the heritage foundation. Right now. But enormous experience. Your expert on energy and a lot of other things. But, dana, today is going to go through on the actual revenue impact of these tax cuts and the surprising thing that revenues did not disappear when tax rates went down. Revelation news flash for many members of congress today. But anyway, to tell us what happened in the twenties with those rate cuts. Well, thanks so much, steve. I want to thank emily, for inviting me and for putting on this whole conference. Its been talked a lot about amadeus biography of but one of her first books was called the greedy hand and it was about how taxes have unintended contact. And steve i am a huge fan of the flat tax. You have that enlightened look about. You have a huge fan would make revenues it would save everybody the burdens that they are coming towards in february and march when they spend hours and hours out what their taxes on french. Im so glad that you are in the house so you can do something about. Making our tax system more efficient and simpler with of course, jims help. I want to thank all the students for coming and for listening and thank our audience on cspan. Well, if could wave a magic wand and have the poor pay a share of taxes and the rich pay a larger share, who would be against that . Would anyone be against that . And how would congress do it . Well, the answer is congress would cut taxes. Thats what happened in the 1920s. And thats what happen today. The 1920s tax cuts reduce the marginal tax rate from 73 to 25 for individ girls earning hundred thousand or more per year. And at that same time, taxes paid by, these high income earners increase just from 300 million to over 700 million per year, or income earners. The result was that they paid a greater share of total income taxes. In 1920. Taxpayers earning over 100,000 were paying about percent of the share total income taxes. By 1928. They were paying. 61 of the share, more than double these tax cuts. The net income of high income and middle income individuals, and consequently high income individuals paid greater of total income taxes, lower income earners paid a smaller share of total income taxes in 1920, 24 of total income taxes came from taxpayers earning 10,000 or less. By 1928, only 3. 1 of total income came from taxpayers earning less than 10,000 a year. The of coolidges tax cuts that an increase in total income across board among taxpayer is at all income levels. The number of taxpayers the High Income Group nearly at this time and the number of taxpayers earning less than 10,000 decreased. The number of taxpayers earning between 10,000 and 100,000 increased by 84 tax revenues initially in the mid 1920s. But tax increased as incomes rose. By 1928. Tax revenues had super seeded the 1920 level despite the implementation of tax cuts in 1924. Coolidge said and i quote experience not show that the higher rate produces the larger revenue experience is the other way. During his tenure in office, the National Debt declined from 26 to 16 of gdp and grew at an annual average of 3. 5 . Coolidge reduced the National Debt from 23 billion to about 18 billion in just six years. His administration often oversaw the elimination of one fourth of federal debt and considerable growth for local and state governments. Well, lets look at some current tax proposals. One proposal is the tax. How many of you students are in favor of a one tax . Many of you think it would make you better off as students . Well, i see that theres no takers. The wealth tax. We dont believe in secret ballots. It comes up period. Its a favor. Its a favorite of the bestselling author, thomas from france. But its difficult to measure how do we measure wealth . Its difficult to know if there were a wealth tax, your parents would not be able to pass on their accumulated savings to you and you would not get to keep all the earnings that youre going to get from your good jobs that come from your excellent education. Theres unrealized Capital Gains, which my colleague jim is going to talk about but assets change. Investor you all the time take a work of art for example say we have a monet or a beautiful river by monet or a beautiful turner painting of the houses of parliament. It changes one month. It could be. 5 million. That same month. Next year it could be worth 10 million. Its very difficult to measure wealth because assets change, invest, value all the time. You can look at the price of gold, the price of gold goes up and down all the time. How is one going to measure wealth in order to tax every year and wealth goes down in one year, say, from 2 million to 1 Million People going to get a credit the next year because their wealth declines and i dont think that thats in congresss plan. Stocks change all the time but they are they you can read their value is in the paper but the value of an old car the value of a piano. These very, very difficult to measure. Plus, people can hide wealth by, say, giving their wives or their mistresses pair of diamond earrings, for example. And then how would one value those . And then what if the couple got divorced . What happen to that sum and the value of the diamond earrings . Crypto is another asset that we can see goes up and down. So a wealth tax, i would say is very difficult to administer is a kind of that i think only an occur demick would propose because in practice it doesnt very well. Another kind of tax that only an academic would propose is a carbon tax. And you see proposals for a carbon across the political spectrum. This tax is ostensibly to reduce emissions. How of you here are in favor reducing emissions . All of you. Thats great. So none. You should be in favor of a carbon tax because if there was a carbon tax here in the United Energy intensive manufacturing would not stop globally. It would stop in the United States. But it would likely go offshore to china, where it would be produced instead of with cleaner natural gas, of which we have so much here in the United States would be produced by chinas coal fired power plants and chinas coal is much dirtier than american coal produced, for example, in wyoming and West Virginia elsewhere. So global emissions would increase, with a u. S. Carbon tax. Thus, such a tax is regressive. People with old cars and old equipment would pay more with a carbon tax than people who could afford, say, a modern. Someone like me who a 2004 jeep. I would more with a carbon tax. One of few people in the audience who might be driving a 2020 mercedes for example. In addition, theres geographic disparity. So people who have drive far because of their work, such as farmers or Small Businesses, they would pay more in this carbon tax and its no fault of their own that they live in places with lower incomes spread apart in distances in. Arkansas, for example, are further apart distances in the washington metropole, an area zero Emission Vehicles. How many you think that zero Emission Vehicles decrease, global emissions . Well, a couple of do. But the zero Emission Vehicles are run electric batteries. So if you have a zero Emission Vehicle under the carbon tax here in the United States, it would do very well and wed have a lot more of electric vehicles. But the batteries to run them are produced in china with the coal fired power plants. There is mining for the that also emissions and a carbon tax if it resulted in more electric vehicles which it likely would would not decrease global emissions. So we have to be very careful of unintended consequences of wealth, taxes and carbon taxes and we can go back to the 1920s to see that lower taxes also have unforeseen consequences. That is higher revenues, the welloff paying a higher rather than a lower share of their income. And low income individuals rising with their income. Getting better jobs. And paying a lower share of tax. So thank you very much for listening. Thank you, diana. I wish we could clone you and put you in the house of representatives and the senate so the french could have some wellinformed allies. He knows where to get in touch. He can find me at the heritage foundation. Im glad to help another. So our third speakers, jim lucier, his managing partner at Capital Alpha partners. Hes a noted expert on taxation and. Jim, tell us about a much misunderstood tax. Capital gains which even today some people confuse with normal. But in the early twenties because of the way the original tax bill. Income tax bill was written off. There was a real question would it be taxed at 73 . Capital gains . Well, steve there certainly was. I just listened to discussion and i hear names like cactus jack, dont you wish we had members of congress with names like cactus jack today and who we just heard about, by the way, john garner, by the way, was unhappy as Vice President. And he said the vice presidency was not worth a pitcher of spit. The word spit was used families. He had another word for. But im going to need. Those were the days but if youre talking about an epic battle between Andrew Mellon and cactus. Cactus jack garner bring taxes down. And it took five years to bring the income tax down from 73 to 25 . But it took really about five months, technically eight months to bring the Capital Gains tax rate down. 73 to 12 and a half percent. And how happened is a really really interesting story that is very, very close to where were sitting here, it involves the u. S. Supreme court. And well get to that in a moment. I did come prepared to do a book commercial. This is my own copy of taxation. The peoples business, Andrew Mellon. It is available on amazon for a dollar 99, but its free on kindle, which is a great because its a beautifully written little book. Its the strunk and white of taxation and im going to start with an idea here. I want to preview the importance the Supreme Court by saying that tax is a war between the economists and the lawyers. Think that for a minute its a war between economists and lawyers. And so what do i mean, i think that if you ask an economist to describe the best tax policy the optimal tax policy the economist is going to talk in scientific hes going to say that all income the economy is either income to or income to labor and the most efficient tax system is going to be one that taxes all at the source one time only with a low margin, a rate that is neutral. That is the same for everyone and for all transactions. So that tax doesnt favor one person or one legal entity or one industry. Its neutral respect to everybody. Its also a tax that is transparent, that is easy to administer and and so it eliminates complexity, it eliminates, distort, it eliminates confusion. So if you pick low marginal rate like 19 and you add a generous consumption allowance for labor income, you have that famous flat tax that our friend and Panel Chairman forbes made the of its president ial campaigns 96 and 2000. Lets turn to Andrew Mellon for a moment. We know that mellon at heart was an economist. He was a banker. He was a very successful businessman. And did you know, youve probably heard already times that he was the first the the First Venture capitalist in the United States. And he had a way of making great visionary investments. Right now, we sitting across the street from a beautiful that will go back to this evening the Thomas Jefferson building of the library of congress. But at the very same time that Thomas Jefferson building was being built, Andrew Mellon was paying out of his own to build the fantastic we now know as the u. S. National gallery of art. Whats more, he donated his own collection of to create the basis of an even bigger collection. He knew that if it wasnt the mellon gallery, it was the National Gallery that if he built it ten times larger than it needed to be for his own paintings, you know, supply would show up, people would donate the and they did. I mean, that shows the way the man was such a forward thinking, visionary. And of course, that art museum is a great gift to the american people. But i would argue that a more important gift was mellon, a gift of prosperity. So as an economist mellon served as treasury secretary, both president harding and Calvin Coolidge, youve heard that many times already. He literally did espouse scientific theory of taxation in his book. That book says the problem of government is to tax rates, which will bring in a maximum amount of revenue to the treasury and at the same time not there to heavily on the taxpayer or business enterprises. Weve heard that before. He also talked about the importance of simplicity, clarity, something that people could understand and and something that was actually easy here to follow than it was to flout. In other words, a very effective, enforceable tax is what he was about. And its really hard to believe that this book, this very clear little book, practically tax haikus based on the letters of advice that mellon wrote to the tax committee. So i bet, mr. Hill, that you dont get a lot of good letters like that from the white house anymore, but they get as a big book called the green book. Thats like a phone book and not read by anyone precisely because it is so thick, it is so unreadable, but i would say that every single word in that mellon really predicts and is totally concise tonight with that flat tax vision that i mentioned earlier. Now if you get away from first principles, get away from fundamental mathematics, you could about the lawyers approach to taxes. And if im a lawyer than anything that i describe in words can become a tax. How many windows on your hacks and house ill tax and ill count them on tax them if they have a new definition of taxation. Hey, capital tax, wealth tax, whatever. Ill just write a law that taxes this new Legal Definition of wealth without looking at the fundamental economics. So its not surprising every time someone comes up with a Legal Definition of income you can have a new tax, a new layer of tax, a duplicative tax, more tax loopholes. The approach to taxation is ultimately a mess. And of course, once you have one group of lawyers write a tax law, you need another group of tax lawyers to figure it out and the cycle goes on. Confusion just gets worse and worse over time and that level of confusion is something im going to come to in a moment, too. But lets go back to mellon. Lets go back to his career as treasury secretary. And youve heard again that those were a time of turbulence and crisis, so many big new things that are important to us today were going on then. The u. S. Had just experienced first european war, first land war anywhere. In fact, outside the north american continent, as bill beech noticed, we had just experienced a Global Pandemic of the spanish influenza with the 16th amendment to the constitution the u. S. Just instituted probably for the first time, unfortunately, a permanent income tax, because the war federal taxation as a share of gdp had tripled from about 2 to 6 . So, you know, weve heard a lot about even the dead ceiling dates to this time because the debt so large and so unprecedented and as you also heard the top marginal tax rate increased from a 7 and six to 7 to 7 as of 1918. And course, the u. S. Economy after the war went into a steep recession and the woodrow Wilson Administration had no doubt why this recession had occurred. I could read you the quotations. But in the interest of time you can take my word for it that woodrow wilson. Wrote in his 1919 state of the Union Address that there can be a point in peacetime when taxes are just too high and are economically countered productive. Is treasury secretary is both of them. William mcadoo and carter glass said pretty much the same thing in their speeches in a president ial campaign, in their letters to congress. And, of course, mellon pointed out at the that the 77 rate then was the highest tax rate in the history of the world. So people realized there was a problem but and there was also i think the beginnings of a bipartisan agreement to start cutting those tax rates to something that was going to be sustainable. But its still hard its hard to cut taxes. And so when the Wilson Administration their first crack, they took it down from 77 to 73. You know, not a big change or not very so economic crisis continues. The stock market was cut in half. We massive wartime inflation followed some of the biggest deflation ever. 18 one year unemployment 16 . Soldiers coming back from the war could not find work. The pharmacol was in a shambles. And then there were real social consequences. Had a question about culture war as well. The 1920s were a time of tremendous framing and upset. It wasnt just dance, they were bonus marchers across the country. We had strikes, we had protests. We had anarchist bombings, huge strike in seattle and, really ugly incidents of mob violence, racial violence in the 1920s. So it was a time of crisis all around and. You know, it was clearly time to do to get that economy back in gear because every aspect to the United States, every aspect of u. S. Society was really hurting badly due to the collapse of the economy. So lets get to the tax point here. You heard how we had this long battle between melon and cactus . You know, congressman john nance garner, a man who went on to become Vice President of states and then went on to become speaker of the house. Very distinguished fellow. So what was going on and why did it take so long to cut the income tax when they cut the Capital Gains tax rate from 73 . As of the beginning in 1921, down to 12 and a half . Think about that 73 to 12 and a half, a huge jump and almost immediately. So where do 12 and a half come from . Melon this long time goal was always a 25 tax. Is capital tax proposal had a two Year Holding Period so you know divide 25 by two and you can get 12 and a half percent that way. I havent seen a quotation. I went through his book looking for a justification for the 12 and a half percent rate, but still pretty stunning. So the real question then, what did to why did congress suddenly turn on a dime and cut the Capital Gains tax rate so quickly . And there we have the Supreme Court coming to the rescue. If you will. The Supreme Court considered not one, not two, but three, but four cases involving. The Capital Gains tax in early 1921. And thats because people really had no idea what counted as a capital. Is it your house . Is it a car . As amity said or excuse me, as diana said, is it a painting. How do you deal capital losses . Should treat the sale of appreciated the same way that you would treat cans of soup in a dry goods store. Nobody really know as a result of extremely high Capital Gains tax that had no clarity, new guidance, no general and of what a taxable capital gain be there was a capital strike as julius said, basch founded prudential securities, which was my old before i founded my own, there was that market. There was Huge Industry of tax avoidance. Lets face it, tax evasion and misallocation, capital, taking peoples productive investments from the Capital Markets and moving them all into muni bonds. So i mentioned earlier that the equity markets had collapsed and to have this this allocation of capital in the bond market made things worse. So it was critical and it was a crisis and no one knew what to do. The Supreme Courts ruling in the case called merchant Loan Interest versus matanga in three other cases, these four cases each dealt with a particular class. But the Supreme Court basically said this is the law of the land. There was a Capital Gains tax. It is 73 . And you it out because we want the laws law and youre going to pay this tax. And the minute the supreme did that, it said that there is no escape need to figure this out. Now that, there is really no valid interpretive action of a practical way to administer this law. Interestingly the Supreme Court dismissed as ingenious spurious taxpayer arguments, saying the rate should not, in fact so high or we should get the deduction basis. You know, the supreme just said no, 70, 73 of everything that happened on march 30th, 1921. And so by november 30th, president was signing the tax reform bill, the revenue act of 1921. And went through congress at record speed, only reduced the top marginal rate to 58 . As you said, we went through other iterations bringing the top rate further down, but including that invasion of privacy known as the peeping tom provision. But the fact is that once the Supreme Court made Capital Gains tax something that you could sweep under the rug, congress did move really fast and it cut the rate from 73 to 12 in a matter of months. So with that, ill turn it back to thank you. Well do a give a few a couple of questions to the panel and then well open it up to the audience to the young people who seem to have a real knack of asking good questions quickly, unlike adults who seem to want make speeches before they get to the question. And so were were were going to favor of congressman can you quickly hit the importance of tax rate cuts versus other kinds of cuts. Some of members of the gop a while were infatuated child credits to show their sympathy for the middle class and all that of stuff. How do you make case that you got to cut the rates, not just a tax cut, giving money back, but how it affects the economy . Well, it gets back to simplicity first and foremost and fair across the entire economy. So when you do a tax credit format, i mean, youre essentially winners and losers. Youre having sort of an industrial policy approach to or, you know, a social policy to the tax code when, the most clear and concise way to do it is do it at the marginal rate level. And make it apply across the board. So but that doesnt stop people looking at this. And you see that in the code, you see it in housing, you see it in child care. And that goes back to back to coolidges time. When people started, we had a Marital Deduction in the original tax code. Were married people could file jointly. So the tax code has always had spin to it, i would say, steve, but the clarity of simplicity is why i think dealing with rates is better than, cluttering it with a lot of special. Features. I think people when they come to april 15th or sympathize with the simplicity, they go quickly. Congressman, give us an overview of the politics of getting a tax cut through. We saw what a slog it was even you had good majorities in congress, the twenties, and he size it up today, both today, which administration wont do but maybe the house can do something or set the foundation for 2025. And then after 2025 can we get good persistent tax cuts. Well during the the four years of the Trump Administration we were able to do two things. One, we able to move a real estate towards simplicity by simplifying, filing, increasing that standard deduction. And really nine out of ten arkansans could just pay on the form easy. They not having to fill the form out all and that was huge was almost double for our in arkansas by simple thing the tax code every person at every income level received a benefit from the tax cuts under the Trump Administration and secondly something that was a bill bradley idea from the eighties of which was to end the double taxation of American Income earned abroad dollar bill was solved finally and we allowed people to repay create then almost 1,000,000,000,000 back to the United States for investing. So we simplified Corporate Tax rate down to the low 20 s. We allowed remove the double taxation of earnings, which is a huge issue for multinational businesses, brought capital home and we simplified our things for our families. Now some of those provisions expire in 2025. And so thats why i support making those trump tax cuts permanent. I think thats the way to go. And i would conclude on this. We are at a 77 year high and what revenue to as a percentage of gdp, we have never brought in more revenue to the United States than we have in the last years following those tax cut reforms by president trump, we dont have a revenue problem in this country. We have a spending problem. This. Diana, youve been the center of a not just understanding economic, but also the sausage making process, getting things done inside that administration seen it firsthand with a title match being in crisis, huge deficits. Can we tax cuts. We always know the spenders well. We cant afford it. Even though. Reducing the tax rates as know would mean more revenue. But they always use. Oh, we cant afford tax cuts commission your political experience. Can we get the tax cuts in the face of these massive deficits and medicare, Social Security about to go bust with their trust funds . Well, its very difficult to cut any thats the best thing to do when you set up a program is to have an automatic sunset for it. So then you have to reshape it a particular number of years there, once you a program, then theres entrenched interests. Thats why its so interesting that the pandemic emergency has been lifted because there were a number of programs that were put in, broadened, eligible for food stamps, broadened eligible for medicaid, that have not vanished because the pandemic has not been taken off. And this gives the president the ability to keep these programs going. Congress has kept them going. Theres been a pause on student payments, for example, even the Unemployment Rate is at 3. 4 , the lowest since 69. There are 11 million unfilled jobs. The labor market is very strong. Anyone who wants a job practically can get. I think have learned from coolidge that tax bring more revenue. We are now as congressman hill said, benefit from president trumps tax cuts. Thats one reason that we have not gone into a recession last year or this year. And we need to keep these tax as low rather than increasing them. Jim, before we go to the audience here, we we live in a fantasy world Capital Gains. Should they be taxed at all . Well that goes back to my earlier about economists versus lawyers when lawyers can describe new concept they write a new law. And so they have double taxation. The point is that Capital Gains the Capital Value of future earnings. A few taxed those earnings at the time of earning you really do it much more efficiently. You tax income at the source one time only. Now this actually believe it or not maybe an area where europe is far ahead of the u. S. In terms of tax policy because europe does raise a lot of revenue, but they raise it with the consumption taxes. The United States requires or relies much more on income taxes, including the Capital Gains tax. So, you know, we raise taxes. We raise revenue. The United States using some of the most and counterproductive. But the reality is that an optimal rate of taxation in an optimal corporate rate is zero. And i think that is, you know, very clear and its supported by the economic evidence, if i could say a point of view against the value added taxes have permeated the rest of the world. These are money machines that you put in place at a very low tax rate and then you crank them up. So the europeans have value added taxes of over 20 and they dont even see those because its basically in the price of the good at the same time they have very high income they also have higher Social Security taxes than we do which is one reason that europe is growing more slowly than the United States. And i think that was best summarized by Paul Mccartney and john lennon when they the seventies and wrote ill tax the street. If you try to sit, ill talk to your seat. If you get too cold, ill tax the heat. If you take a walk, ill tax your feet and the taxman. Thats in fact, thats the. One of the greatest newspaper stories that i wish i had clipped the time was quoting mick jagger taxation and why he was tax exile from the uk. They said, hey, id pay 50 , 50 as fair, but no more. So, you know mick jagger as he goes. Well, if those are the sources, why dont we go to the audience. But people on the right mood. Raise your hand and theyll bring the microphone over. So why dont we start here and then well work across the room, state your name. Well, my name, sam. Born from new hampshire. And the panel today talked, a lot about cutting. And i know from coolidges they cut it from 73 to 25 . But with respect to the loffler, what is the ideal rate of taxation . Because presumably of taxes continued to be cut as they did with coolidge increased income. But when do we hit the point when taxes will continue to decrease income and is no longer incentive continue to cut taxes zero, but yeah. No, but seriously, seriously, seriously. It looks like with world experience that if you get it below 20, you get maximum impact and i think if he had been president for another term, ian mellon would have gone for the 25 down to perhaps 20 or even a tad. I would, i would just add that, you know, in coolidges i mean, and Andrew Mellons book, the taxation, the peoples business, which i think was ghostwritten by Parker Gilbert gilbert thats what they were talking about when they said scientific taxation. This was the whole mission were cranking data by hand computers then to try to what they thought that marginal would be where you maximize what art laffer made famous during the the reagan administration. Theres also a matter of whether revenue constrains spending because with lower revenue you find perhaps spending on roads can be built with private sector funds rather than federal. One problem we have now is that revenue the revenue have is not constraining spending. Spending, as congressman knows, is just through the roof. And if spending through the roof, then theres upward pressure on these ideal tax rates that we might try to put in place. We need to have a system the way states do where they cannot spend more than the revenue they get in. High. Hi, my name is nick jacobson. Im from lewisburg, pennsylvania im curious, pennsylvania just had a big lawsuit about apparently our schools are funded property property taxes and that unconstitutional because it is inequitable but it made me think about the relationship between local taxes, state taxes and federal. I know the trump tax cuts eliminated Tax Deductions for state taxes paid. So im curious how you all think about what whether there should be more single synchronous work between local state federal taxation or whether each of these levels of government should be making decisions independently of one another about taxation rates . Lets a. A. Have opinions on this. But ill just start out and say that was one of the key debates in, those tax reform debates. And in 2017 and 2018, and this is the state and local tax deduction. Is your state income tax on your state property taxes. And the idea was why do all the cities of the country across the country at large the general welfare to subsidize exceed really high tax rates in some states so they looked at property taxes and state income you know across the whole country and we pick 10,000 as the cap of the top that would maintain a deduction. And so some of the blue states have much higher rates. And that was the and so new york, illinois connecticut, there were california crime, the blues there. But why should all of us across the whole nation subsidize poor budget performance in a few states. I know ill pass things. Next question here on. Hi, im alex pavelski from york city. You talked a lot about domestic taxes, but one form of taxation that i find really problematic is tariffs. And both the former president and the current president talk a lot about increasing American Manufacturing by american higher american and increasing tariffs withdrawing from the tpp. As we saw what would coolidge do about decreasing tariffs and making imported goods more affordable for the american. Well, coolidge was, a protectionist that was the ethos of the republican party. The time mellon as but as we learn from income taxes the tariffs are a tax and you can have benign rates and you can have malignant rates. And unfortunately in my mind, the smoothawley, which began making its way through congress in 1929, helped precipitate the stock market crash, blowing up the Global Trading system, massively increasing taxes, putting in an income tax of 85 , and the results were bad. Im opposed to tariffs. I think there are other ways to achieve good, but thats why here and not in my president ial library. So. Im sure we need to be thinking about it in terms of what is our national. So i dont believe in our National Interest to have taxes, lumber from canada for canada is our trading partner our friend. We should have approved the keystone xl pipeline to allow more oil to come in so it can be in our refineries on. The i have on the other hand, if other countries put up barriers towards goods, then we should consider tariffs against their goods. We need reciprocity. We cant just say we are going be free of tariffs but allow other countries to have barriers to, our exports so that our Small Businesses and our farmers are from other countries policies without some kind of reciprocal retaliation. By the way, after World War Two or number of decades systematically countries got together that. Did reductions, trade barriers and very helpful to global trade. One or two this young woman here. Hi my name, audrey carmena from san francisco, california and this is for congressman french hill. Mr. Forbes mentioned your extensive study of, Nicholas Longworth and i wondering how you expect he have navigated the rampant, high spending, deficit spending that you face in the house today . Well, longworth, his wife, Alice Longworth said, was an expert compromiser. It was longworth who took those progressive insurgents into the office and convinced them to vote for Fred Gillette. And that they would be listened to in the new congress. He was responsible for getting a gillette that speakers after nine ballots in my view. And so longworth was good tactician. He was a good listener and i think he would have followed with the majority. He was a very practical guy, he told coolidge mellon in 22, i dont have the votes ill do the best i can. And thats what president coolidge signed the treaty for act as steve ford said and, president reagan was great at this. If i can get 80 of what i want. Im going to get it. Ill come back for the other 28. And that was precisely what coolidge did. He campaigned on an International Campaign on it to get the rest of he wanted after the 24 election. And so he was if he had the votes. He was going to work to his advantage. He didnt have the vote. He would get the as much as he could. So i think he would have set a goal and navigated his friend, jack gardner would have been right there at his side unfortunately run out of time. We dont want to take time from your upcoming free lunch. So one to want to thank our